No Dr Mthuli, we can’t keep blaming EcoCash and mobile money for depreciating dollar

A scapegoat is a goat upon whose head the sins of the people are placed. The goat itself is sinless and yet it has to bear the sins of the people. The Zimbabwean government is looking for a goat to place the local currency collapse sin on. 

Every day a potential goat is identified and is paraded for the nation to see and when no one believes the goat can adequately carry our sins, a new goat is sought. When an adequate goat can’t be found, we go back to mobile money. Or more correctly EcoCash.

We are in mid-October 2021 and the Minister of Finance, Dr Ncube has promised to tighten regulations on mobile money . As reported by Business Times he says,

“There will be innovations that you will see especially on the mobile money  platforms which have tended to run ahead of regulation. We can catch up with them and institute effective regulation.

It’s about tightening the regulation, making sure that it complements the other policy measures so that we stabilise our currency and keep it stable.”

Finance Minister, Dr Mthuli Ncube

This is because mobile money platforms are still somehow chiefly responsible for the collapse of the Zim Dollar. Seems the good doctor may need reminding.

We already crippled mobile money platforms

I think very few would argue that mobile money platforms were not used in the exchange of currencies on the parallel market. We all know ‘millionaire money changers’ who used EcoCash to build their empires. But that was in the first half of 2020 and earlier.

The government clamped down on mobile money platforms because of “Rampant abuse of agent, super-agent and bulk payment wallets for purposes of trading on the foreign exchange parallel market.” The following actions were taken to remedy that:

1. Transaction limits – after discovering the tomfoolery, the government proceeded to place a $5000 daily limit which was restrictive even for ordinary individuals. It was only at the end of August this year that the daily limit was increased to $20000. Hardly enough to move the needle on the black market.

2. Agent, merchant and bulk payer lines were rendered useless – the following transactions were banned: 

• agent to agent
• bulk payer to bulk payer;
• agent to bulk payer
• bulk payer to agent
• merchant to agent 

3. Agent lines were then permanently banned – the agent lines that were being used to mop up forex on the streets were shut down. The government said they no longer served any meaningful purpose.

4. Bulk payer lines were limited to disbursing low-value payments such as for humanitarian aid and also for payments related to agricultural services.

5. Individuals were limited to one mobile money wallet.

6. ALL EcoCash balances can only be liquidated/ converted to cash by first transferring them to a bank account. Be they the large balances merchants hold or the small ones individuals have and everything in between.

With all these moves, the government succeeded in crippling EcoCash and its competitors. It is virtually impossible to move the kinds of funds that could destabilise the local currency through EcoCash. 

What about the EcoCash agents in court?

Indeed there are 8 firms being prosecuted for illegally dealing in foreign currency using EcoCash agent lines. However, those crimes were committed back in the first half of 2020 and earlier. They won’t help us explain the recent drop in Zim Dollar value.

Pressure on the government

There are upcoming elections and the free-falling local currency and rising inflation are de-campaigning for the ruling party. I would never accuse Dr Ncube of mere politicking but the politics of the matter say he has to be under pressure to rein in the chaos. It is under this pressure that he has lifted his baton to strike an already wounded/ almost powerless EcoCash.

We shall see what the innovations that will further tighten the regulations on EcoCash will be. Right now it looks like all the bolts are fastened tightly but I guess you can always risk damaging the threads to get a more secure fit. That said, it does feel like they are grasping at straws. After all, what is still there to tighten?

The real culprit

The question is: if not EcoCash, then who? How are the trades being executed on the black market? We know that cash in circulation is tightly controlled through withdrawal limits and cannot be responsible. So this means even when EcoCash agents were the culprits, in most USD to RTGS$ exchanges on the streets, no ZWD cash ever changed hands.

This means most deals were already done through RTGS transfers because even back then, RTGS transfers accounted for around 75% of transaction values. So EcoCash was a scapegoat even back in 2020. Not a sinless goat but one burdened with more sins than it could possibly be responsible for.

It was always a case of scapegoating EcoCash but now that they maimed the scapegoat, we are forced to face the reality that RTGS transfers have always been the culprit. Something the public already knew.

What can be done?

Obviously we can’t issue an order to freeze all bank accounts with balances over $100,000 like we stupidly did with EcoCash accounts. All restrictions we could place on the movement of funds will adversely affect business. Something we can’t do because RTGS transfers are the ONLY way businesses are able to meet their local obligations.

It is after considering this that, yet again, we are forced to realise that we are always trying to fix the symptoms and not the root cause. People are not converting their Zim Dollars to USD just because they can transfer the funds to black market forex dealers. That’s silly. 

Instead, low trust in the depreciating local currency is the real reason they do it. We could keep trying to make it hard for them to be able to transfer their RTGS$ to forex dealers but guess what, that doesn’t fix the real issue and so people will find other ways. It’s not stubbornness, or anarchism, or nefarious sabotage but just pragmatism on the part of the majority.

So we could clamp down on regular individuals swiping for others in order to get USD cash. Still, that doesn’t fix our problem. It only closes another door for the millions of Zimbos earning Zim Dollars to convert it to USD. Lest we forget, the civil servant earning RTGS$ has to pay rentals in USD. You’ll hear the argument that they should queue up at a bureau de change every week. If only landlords were that patient.

Who has the most RTGS$?

Zimbabwean proverb: He who holds the most Zim Dollars has the most to lose.

So it stands to reason that those with the most to lose will do almost anything to protect their belongings. We have seen some flock to the stock exchanges, those who qualify to participate in the forex auction get the most they can there and the rest are probably going to the parallel market to convert to USD.

In the 2021 national budget the government revealed that capital expenditure is expected to reach about ZWL$55 billion. It is such expenditure which is chiefly responsible for the expanding money supply that we are now trying to tighten. 

If the businesses that receive those contracts were to convert that money at the auction rate, the RBZ would have to cough up over US$630 million. Therefore not all those who receive a piece of that $55 billion will qualify to participate in the forex auction. Even those who qualify won’t get all their forex needs from the auction. What are they doing with those huge RTGS$ balances?

This is not to single out businesses contracted by the government for capital projects. Rather this was to illustrate that it is some businesses with huge RTGS$ balances that are participating the most on the parallel forex market.

The lady swiping for someone to get their US$10 cash is not the reason demand for US$ shot up dramatically. The EcoCash agent’s activity similarly has little impact on the parallel market.

So let’s stop this talk about EcoCash being chiefly to blame for Zimbabwe’s ills. Let’s find another scapegoat, or better yet call out the the real sinner.